The BJP and the Congress: a muddled economic ideology

(Any opinions expressed here are those of the author and not of Thomson Reuters)

As debates in India go, the one between Amartya Sen and Jagdish Bhagwati – two of India’s leading economists – has been fairly civil. Not the belligerent speeches or noisy protests that characterise public discourse in the country. Instead, this battle of ideas is taking place in the rarefied circle of the nation’s think tanks and financial pages, with economists, writers and policy makers weighing in. But the civility cannot mask the intensity on both sides; moving beyond economic data and models, the debate has become personal. At stake is a very powerful question – what is the best way to improve the lot of India’s citizens?

Conveniently, both sides have articulated their vision for the country in two recent books. The first by Sen and his long time collaborator, Jean Dreze, titled “An Uncertain Glory” questions why India continues to lag on all social indicators despite two decades of free-market reforms. Their data shows that the country’s growth has largely bypassed the poor and that the reforms have benefited a privileged minority. To correct this imbalance, Sen and Dreze make the case for greater public intervention in health and education.

On the other side of the economic spectrum is “Why Growth Matters” by Bhagwati and Arvind Panagariya, his colleague at Columbia University. Their book is a forceful defence of India’s growth story. Bhagwati and Panagariya assert that reducing the role of the government and allowing private enterprises to flourish is the only way to lift millions of Indians out of poverty. The state can fund welfare programs only if the economy is growing at a fair clip and public revenues are healthy. That such an idea is even up for debate is frustrating to them.

On the face of it, the positions by Sen and Bhagwati fall nicely along party lines. Both Jean Dreze and Amartya Sen have been vocal advocates of the public entitlement schemes launched by the Congress-led government. Dreze helped draft the National Rural Employment Guarantee Act (NREGA), which guarantees 100 days of minimum-wage employment to every rural household. The two economists have also blessed the National Food Security bill which makes the right to food a legal entitlement.

Meanwhile, Jagdish Bhagwati has endorsed the “Gujarat model” that the BJP has placed at the front and centre of its 2014 campaign. Their candidate, Narendra Modi has also made all the right noises about small government and accelerating the reform agenda, which mirror the arguments by Bhagwati and Panagariya. Mindful of the electoral arithmetic, the party hasn’t explicitly opposed the welfare schemes, but remains sceptical of their efficacy.

It would appear then that the voters have a clear choice between two competing economic ideologies. On the one hand is the Congress’ belief that continued economic growth is only possible if public spending is directed towards improving health and education. On the other hand is the BJP’s position which holds that pro-growth policies and market-oriented reforms are the best path to reducing poverty.

Unfortunately the contrast isn’t as stark. Analysing the economic policies of the Congress over the past few years, it is hard to find a unifying principle. With the food security bill, very little time has been spent debating the governance of such a massive social project; the focus is on passing the bill in time for the general elections. Similarly, the package of reforms announced recently was more a reaction to market demand for some action than part of a larger plan. A speech in April by Rahul Gandhi to India’s business leaders sums up this patchwork approach to economic policy. While his talk included personal anecdotes, head-scratching metaphors and even some gross cultural simplifications, it did not articulate the party’s economic vision for the country.

The BJP’s pro-business stance seems just as opportunistic. The party’s support for market reforms is contingent on whether it’s in power or in opposition. For instance, on the issue of foreign investment in retail, the party supported the move before it opposed it. More importantly the conservative wing of the party remains deeply distrustful of the West. There’s an inherent contradiction between advocating an open business environment that attracts foreign investment while trying to insulate the country from the ills of Western culture.

That is unfortunate. The issue of lifting millions of Indians over the poverty line and improving living standards for the rest is a serious one. There isn’t a precedent for a country of India’s size and complexity trying to grow out of poverty. The model that works for India will likely be an amalgamation of economic philosophies. But for that to happen, the debate needs to move beyond the intellectual set and become part of the political mainstream. On social issues, the Congress and the BJP have presented clearly differing visions – multiculturalism versus a dominant Hindu identity. The country can benefit from a similar choice on the economic front.